Detroit sues retirement funds to void pension debt

January 31, 2014|Reuters

Jan 31 (Reuters) - Detroit on Friday sued its two retirementsystems in U.S. Bankruptcy Court, seeking to invalidate $1.45billion of debt sold in 2005 and 2006 to fund public workerpensions, according to a court filing.

The lawsuit contends contracts the city entered into for thedebt sale were illegal under Michigan law and that all othercontracts connected to the debt are also void.

Those other contracts would include the city's deals withinvestment banks to hedge interest rate risk on some of thepension debt. The deals soured as interest rates dropped alongwith Detroit's credit ratings. The money owed to the banks was akey element that drove Detroit to file for municipal bankruptcyin July.